Research On The Relationship Between RMB Exchange Rate And Sino-US Trade Imbalance

This paper analyzes the influence factors of Exchange Rate Pass-through Effect on trade based on the theory of Exchange Rate Pass-through and Elasticity to price and conducts an empirical study on the relation between RMB Exchange Rate and Sino-U.S.trade.The empirical results show that,before the Financial Crisis in 2008,RMB Exchange Rate is not directly related to Sino-U.S.trade imbalance,so that Exchange Rate isn’t considered as the reason for Sino-U.S.trade imbalance.After the Financial Crisis,the influence of RMB on Sino-U.S.trade represents a subtle “Inverted J-Curve Effect”.In other words,Exchange Rate has no obvious restrict relation with trade balance at the initial stage,while RMB Exchange Rate begins to play a regulatory role for bilateral trade recently.The empirical results also show that Income Effect of two countries has greater effect on trade than “Exchange Rate Effect”.The influence of RMB Exchange Rate on Sino-U.S.trade is a dynamic process and RMB Exchange Rate is not the reason for Sino-U.S.trade imbalance.Based on the empirical analysis,this paper points out that,shrugging off the criticism of RMB Exchange Rate from the outside,China should ensure the relative independence of Reform of RMB Exchange Rate,grasp the historical opportunity to introduce a wider fluctuation mechanism of RMB against basket of currencies and form market-driven Exchange Rate to a large extend,so that RMB Exchange Rate can reflect the supply and demand in the foreign exchange market better.As for Sino-U.S.trade imbalance,two countries should make use of bilateral dialogue platforms such as G2 and BIT,correctly understand trade issues of two countries and underline to resolve conflicts by means of cooperation.Meanwhile,adhering to the general principal of driving reform through opening-up,China should continue to promote the implementation for “One Belt and One Road” National Initiative so as to reduce dependence on trade with U.S.,strengthen discourse power and realize long-term development.